Six months after its publication, Provisional Presidential Decree - MP 752/2016 was officially converted into Law No. 13,448/2017, thereby incorporating the amendments approved by the National Congress, with some presidential vetoes. The text of the law brings in relevant innovations to the extensions of federal agreements in the infrastructure sector and seeks to establish clear rules for what was already practiced in other sectors, but did not have an express provision in the legislation applicable to the matter.
The new law integrates the package of government actions to resume and expand investments in Brazil, in a context of economic and political instability. Although there are limitations, the initiative indicates a federal tendency to standardize early extension procedures, respecting TCU guidelines, and building on successful experiences in securing new investments in infrastructure.
For the private sector, the approved text gives greater predictability and security to the realization of investments at a crucial moment for Brazil. For the public authorities and public agents conducting the process, the law brings more clarity to the procedures and criteria for extension. In our view, the measure can contribute to increase the speed of performance and resumption of investments in infrastructure, which are key to the Brazilian economy, and benefit users, who have interest in the continuity and quality of service.
The law regulates three public policy solutions in the scope of partnership agreements that are entered by the federal public administration or that make use of federal funds: (1) the extension of administrative agreements, carried out near the end of their original term; (2) the possibility of early extension, during the course of agreements, with the aim of expanding and anticipating investments; and, finally, (3) the possibility of amicable contractual termination and subsequent re-bidding of concessions in default or whose concessionaires have lost the necessary financial conditions to perform under the agreement.
The extensions will depend on a demonstration of their advantage in relation to holding new public tenders, through technical feasibility studies (EVTE). The process is subject to the evaluation of the TCU and other requirements set forth in the legislation for each sector.
Similarly, the re-bidding should be preceded by EVTE and public consultation, as well as submission of the documents to the TCU. Another relevant issue is the prohibition on participation by some entities in the re-bidding process or in the future capital of the winning bidder. The restriction covers both the concessionaire and shareholders holding 20% or more of the concessionaire’s capital at any time prior to the commencement of the re-bidding process. Even shareholders who did not cause the breach or who have financial conditions to manage the concession will be prevented from participating in the new bidding and the capital of the new concessionaire.
In order to benefit from the law, companies must be qualified under the Investment Partnerships Program (PPI), upon request of the competent ministry and publication of presidential decree (see Federal Law No. 13,334/2016 and CPPI Resolution No. 1/2016).
The law applies only to agreements entered into by the federal public administration in the road, airport, and railway sectors, and extension is directed towards toll roads and railroads. Both sectors have a number of mature concessions (with more than 50% of the original deadline), the extension of which is possible and has already been discussed in many cases with the agencies governing the sector, although there is no general regulation on the matter. The re-bidding applies to the three sectors, but is mainly focused on highways and airports, where there are cases of difficulties in executing agreements due to different factors, such as widespread frustration of demand resulting from the crisis and loss of capacity on the part of the concessionaires belonging to economic groups investigated in Operation Carwash [Lava Jato].
The enactment of Law No. 13,488/17 indicates that the government is willing to solve the problems which hinder the expansion of infrastructure in strategic sectors for national development. This is an important step in the resumption of investments, signaling the government's willingness to address problematic issues that hinder the expansion of infrastructure in sectors that are strategic for national development. However, its real extent will only be known once the law is applied to the sectors regulated by it.
For more information about early extension and re-bidding, see also: Conversion of MP 752 confirms possibility of early extension of railroads and toll road concessions and Law No. 13,448/2017: procedure for re-bidding for public service concessions.